Corruption Risks Associated with Citizen- and Resident-By-Investment Schemes
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Corruption Risks Associated with Citizen- and Resident-by-Investment Schemes This scoping note is a draft. It was prepared by the OECD as background material for the session “Residency for Sale? Mitigating ‘Golden Visa’ Abuse” of the OECD Anti-Corruption and Integrity Forum 2019. Contents Introduction ...................................................................................................................................... 2 1. What are RBI/CBI schemes? ......................................................................................................... 2 2. Why do countries offer RBI/CBI schemes, and what benefits do they offer to jurisdictions and investors? ........................................................................................................................................... 3 3. Who offers and who uses RBI/CBI schemes? ............................................................................... 4 4. How do thresholds vary for granting CBI/RBI? ............................................................................ 5 5. How could RBI/CBI schemes pose risks of corruption and economic crime?.............................. 6 6. Existing policy recommendations for ensuring due diligence to safeguard RBI programmes ..... 8 7. Possible areas for future analysis .................................................................................................. 8 ANNEX 1 ........................................................................................................................................ 10 1 Introduction 1. Residency-by-investment and citizenship-by-investment schemes (RBI/CBI schemes) allow foreign individuals to obtain residence rights or citizenship through investment or against a flat fee. These schemes are sometimes referred to as ‘economic citizenship’, ‘investor residency programmes’, or ‘golden visas’. If misused or abused, these schemes could carry risks of economic crime and corruption deriving from insufficient due diligence and weak governance of the programmes. 2. This scoping note outlines some of the possible risks of corruption and economic crime associated with RBI/CBI schemes, and presents potential areas for future reflection which could facilitate developing appropriate policy responses to mitigate the risks. 1. What are RBI/CBI schemes? 3. RBI/CBI schemes allow foreign individuals to obtain permanent residence rights or citizenship in exchange for local (financial or real estate) investments or against a flat fee.1 These schemes are sometimes referred to as ‘economic citizenship’, ‘investor residency programmes’, or ‘golden visas’. RBI/CBI are directed at passive investors2, rather than entrepreneurs or investors who will be actively involved in operating a business they have created or in which they have invested as a sole proprietor or as a partner. 4. The design of RBI/CBI schemes varies across jurisdictions, but most involve an up-front investment, in the public or private sector or in real estate, combined with application fees and an amount to cover due diligence costs. Some programmes allow for either a large non-refundable contribution to the treasury or to a national development fund, which finances strategic investment in the domestic economy, or an investment in real estate (which can be re-sold after a specified holding period). Other programmes provide the option to invest in a redeemable financial instrument, such as government securities.3 5. The inflows of funds from these programmes may be substantial, with significant macroeconomic implications across various sectors of the economy, which is particularly the case for small jurisdictions.4 Box 1. Defining CBI and RBI schemes The definitions of RBI and CBI schemes vary. In its 2018 study, Transparency International has focused on schemes in EU countries which involve a large and passive form of investment, and which tend to offer a faciliatated route to citizenship or residence with limited requirements for physical presence. The European Commission states in its 2019 study that CBI involves granting a citizenship with less stringent conditions than under ordinary naturalisation regimes and, in particular, without prior residence in the country concerned. RBI schemes, in turn, involve granting residence rights in exchange for investment. 1. OECD (2018) 2 “Passive investors” are those who invest capital in a business without playing any role in management or operations; investors who buy stocks, bonds or other instruments for a fixed period; or investors who purchase residential real estate without commercial intent, with the intention of holding the real estate for a fixed minimum period. In this case, the jurisdiction does not need to take into account the entrepreneurial characteristics, intentions or background of the investor, as they have no bearing on the use of the capital. 3 . OECD (2018) 4 . IMF (2015) 2 A definition developed by the OECD based on analysis of schemes in OECD countries suggests that CBI schemes involve immediate granting of nationality in exchange for a certain investment. RBI schemes, in turn, grant a residence permit or visa with a fixed validity, either permanent or temporary and renewable, allowing eventual eligibility for naturalisation, subject to the standard criteria. In OECD countries, some provisions may exist in RBI schemes to simplify transition from temporary to permanent residence, but the path to citizenship is largely the same for RBI investors as for other legal foreign residents. Sources: European Commission (2019), Investor Citizenship and Residence Schemes in the European Union; Transparency International (2018), European Getaway – Inside the murky world of golden visa 2. Why do countries offer RBI/CBI schemes, and what benefits do they offer to jurisdictions and investors? 6. Many jurisdictions may offer RBI/CBI schemes as a means to attract additional sources of foreign direct investment. The economic downturn of the late 2000s and the bursting of a real estate bubble in a number of countries prompted an expansion in OECD countries offering RBI for real estate purchases, with the purpose to prop up the real estate market – especially but not exclusively for high- end properties. Similarly, countries which saw their access to credit diminish and public and private borrowing costs increase also introduced RBI in financial assets. 7. Individuals may be interested in RBI/CBI schemes for a number of reasons, including greater mobility, thanks to visa-free travel or mobility within the EU; better education and job opportunities for themselves or their families; or the right to live in a country with more stable political or economic conditions. While almost all OECD countries and most developed countries provide temporary residence permits for foreign entrepreneurs and active investors in businesses, not all countries offer RBI. 8. Investors in such schemes generally accept lower returns on their investments for benefits offered via RBI/CBI schemes. These include, for example, favourable conditions for permits in the receiving country. In some jurisdictions, investors are offered facilitated or expedited immigration procedures. This is particularly true in countries where migration procedures are long and complex. Additionally, citizens from advanced countries represent an important share of applicants to some RBI/CBI schemes, generally motived by lower tax regimes. 9. Most OECD countries grant investors an initial temporary renewable visa allowing residence in the country, access to work and eligibility for permanent residence under the same or better conditions as other temporary permit holders. There are some countries which grant permanent residence immediately (such as the US under its EB-5 visa). Others grant only temporary permits; since extended or frequent absence from the country may lead to permit withdrawal or ineligibility to acquire permanent residence for holder of temporary residence permits in most OECD countries, exemptions from residency requirements may be granted to investors (such as Spain, Latvia and Portugal). In these countries, application for nationality can occur after a minimum residence period, which varies according to the country. 10. OECD countries subject resident investors to the same requirements for access to nationality as other foreigners. There is a strong general case for creating a channel for naturalisation: access to the nationality of the country of destination can help foster integration process. For this reason, a number of OECD countries have residency requirements of as little as two to three years prior to requesting naturalisation, although other requirements such as language proficiency are generally applied. There is no compelling argument to make naturalisation more difficult or the residency period longer for investors than for other immigrants. Due diligence on the source of funds and criminal background checks are concentrated at the initial permit issuance phase, and most countries require further documentation of all applicants for naturalisation, depending on their individual situations. However, 3 residency requirements can be justified, since they allow foreigners to develop the local experience, network and host country language proficiency which favour long term integration. 11. Citizen-by-investment programmes without or with minimum residency requirements mostly exist outside of the OECD. Providing citizenship enables the investor to enjoy all the benefits associated to citizenship